1. What is ROI?

ROI (Return on Investment) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. It measures the amount of return on an investment relative to the investment's cost.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• Net Income — Annual income generated by the property after expenses
• Investment — Total amount invested in the property

Explanation: The equation calculates what percentage return you're getting on your investment each year.

3. Importance of ROI Calculation

Details: Calculating ROI helps investors compare different investment opportunities and determine whether a particular property is worth purchasing based on its potential returns.

4. Using the Calculator

Tips: Enter your net income (rental income minus expenses) and total investment amount (purchase price plus any renovation costs). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ROI for rental property?
A: Generally, a good ROI for rental property is between 8-12%, though this varies by market and property type.

Q2: Should I include mortgage payments in the calculation?
A: No, mortgage payments are not included in the basic ROI calculation as they represent financing, not the property's fundamental performance.

Q3: How does ROI differ from cap rate?
A: Cap rate is similar but doesn't include financing costs, while ROI can account for all costs including mortgage payments if you choose to include them.

Q4: What expenses should be included in net income?
A: Include all operating expenses: property taxes, insurance, maintenance, property management fees, and vacancy allowance.

Q5: Can ROI be negative?
A: Yes, if expenses exceed income, ROI will be negative, indicating a loss on the investment.